2019 (10) TMI 1213 - HC - VAT and Sales Tax

Classification of goods - rate of tax - borehole drilling rigs used for the purpose of drilling - main ground raised and argued is to the effect that the Clarification issued by the Commissioner was very much in force at the time of assessment and thus the Assessing Authority ought not to have simply ignored the same without noting the position that a superior authority had considered the very same equipment that was in issue, holding the same to be taxable as a tool - petitioners sought a clarification from the Commissioner of Commercial Taxes under application dated 29.03.2007 as to what the proper classification of the commodity would be as well as the applicable rate of tax.. HELD THAT - The legal position that emerges to me from a consolidated understanding of the decisions referred to above is that an Executive Circular that has no claim to statutory sanction or force cannot bind either an assessee or the revenue. Needless to say, no Circular, executive or otherwise, will bind the Courts. In fact, Courts have held that even a statutory Clarification issued by the head of the Commercial Taxes Department would not be the final word when it comes to matters such as classification of commodities/equipments or rate of tax thereupon, if such clarifications are contrary to law or the provisions of the Statute itself, including the Schedules thereto. Such being the case, a Clarification, in the nature of an Executive Circular has no binding force. More so, in the present case, the assessing authority has taken up and completed the assessment pursuant to an order passed by this Court dated 22.12.2008 directing completion of the assessment. The Officer was specifically directed to complete the assessment on merits and in accordance with law which means a proper interpretation of the relevant statutory provisions and schedules thereto. The classification of the equipment as accessories of motor vehicle has been done by the officer in a proper and detailed manner and nothing has been pointed out to establish that the classification is perverse or contrary to the factual position. The only argument raised and argued is to the effect that the officer ought to have followed the Clarification issued by the authority. In the light of the detailed discussion as above, this argument of the petitioner is rejected. Admittedly, the Clarification issued by the Commissioner has not been withdrawn. If at all the Assessing Authority in the present case was of the view that the Clarification had not taken note of certain factual aspects or, as he has stated in the impugned orders, has been obtained on a mis-representation, he ought to have brought this to the notice of the higher authorities and obtained proper guidance before proceeding to unilaterally reject the ratio of the Clarification and proceed on an altogether different premise. What results is a contradiction between the view taken in assessment and what the Commissioner has stated, in regard to the identical commodity. As a fact, the assessee in the present case has not collected tax in excess of 4% relying on the Clarification issued by the Commissioner that has not been followed in assessment. Thus, the petitioner is permitted to seek waiver of the disputed amounts raised in the impugned assessments and the Committee for waiver shall consider the request and grant the same - Petition dismissed.

Issues Involved:
1. Classification of borehole drilling rigs for tax purposes.
2. Binding nature of the Commissioner of Commercial Taxes' clarification.
3. Legitimacy of the Assessing Authority's classification.
4. Impact of conflicting clarifications on tax collection and assessment.

Issue-wise Detailed Analysis:

1. Classification of Borehole Drilling Rigs for Tax Purposes:
The petitioners, manufacturers of borehole drilling rigs, sought clarification on the applicable tax rate under the Tamil Nadu Value Added Tax Act, 2006. The Commissioner of Commercial Taxes clarified that the rigs were taxable at 4% under Entry No.138 of Part B to the Ist Schedule. However, the Commercial Taxes Department later proposed a 12.5% tax rate, treating the rigs as 'Motor Vehicle accessories.'

2. Binding Nature of the Commissioner of Commercial Taxes' Clarification:
The petitioners argued that the clarification issued by the Commissioner was in force at the time of assessment and should have been followed. The court noted that while the clarification was an executive order, it was not binding on the Assessing Authority when acting in a quasi-judicial capacity. The Supreme Court and various High Court judgments have established that executive clarifications do not override statutory provisions and are not binding on the courts or quasi-judicial authorities.

3. Legitimacy of the Assessing Authority's Classification:
The Assessing Authority classified the rigs as 'Motor Vehicle accessories,' rejecting the Commissioner's clarification on the grounds of misrepresentation. The court upheld this classification, stating that the Assessing Authority had conducted a proper and detailed assessment. The court emphasized that an assessing authority must act judicially and apply the statutory provisions appropriately, even if it contradicts an executive clarification.

4. Impact of Conflicting Clarifications on Tax Collection and Assessment:
The petitioners collected tax at 4% based on the Commissioner's clarification, which was not withdrawn. The court acknowledged the resulting contradiction between the Assessing Authority's higher tax rate and the Commissioner's lower rate. It noted that the Commercial Taxes Department should have addressed this inconsistency. The court permitted the petitioners to seek a waiver of the disputed tax amounts due to the conflicting clarifications.

Conclusion:
The court dismissed the writ petitions but granted the petitioners the liberty to seek a waiver of the disputed tax amounts. The court emphasized that while executive clarifications are not binding in a quasi-judicial context, the Commercial Taxes Department should ensure consistency to avoid prejudicing taxpayers.

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